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Apr. 13, 2005
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From rent to own, Charlotte-style
Condo conversions are picking up speed

In one of the nation's hottest real estate trends, developers are snapping up apartment buildings to convert to condominiums.

In Charlotte , real estate lenders and analysts say, conversion is occurring -- but on its own terms as investors scour neighborhoods in or near the center city for the most desirable locations.

"Whatever has a certain panache -- the South End area, old warehouses, lofts -- that's what will be successful in Charlotte ," said Arthur Nevid, managing director of investment and lending for Charlotte 's Mountain Funding.

Converters in Charlotte generally promote their projects by offering buyers an alternative to more expensive houses and condos nearby.

Suburban conversions are more challenging because they compete with affordable new housing in areas where land is still available for development.

That's the difference in Charlotte -- which still has space to build -- and sizzling Miami , where newcomers are generating demand beyond the new home market's capability to deliver.

Here, the next big thing in condo conversion likely will occur in or near the center city.

The real estate grapevine is rife with rumors that Spectrum Properties, developer of uptown's 304-unit Fifth And Poplar Apartment Homes, might be preparing to take it condo.

The company, which is converting an office building at 230 S. Tryon St. to condos, will say only that it is "considering" conversion of the Fourth Ward apartment complex.

No details were disclosed, but if it happens, it will be Charlotte 's biggest apartment-to-condo conversion in number of units in at least a decade.

Real estate sources are convinced that an apartment conversion project is taking shape in South End near uptown, but that couldn't be confirmed.

Also, Winter Properties officials have said they eventually expect to convert Highland Mill Lofts in NoDa from apartments to condos.

One of the best examples of how such close-in projects work is Eastover Glen Apartments at Cranbrook Lane and Randolph Road , across from the Mint Museum of Art and Eastover Park .

The location is near such desirable neighborhoods as Eastover and Myers Park and convenient to uptown. Marketing was a slam dunk: imagine owning a condo for as little as $100,000 in the shadow of some of the city's most affluent homes.

The developers haven't disclosed financial terms, but the conversion illustrates how investors can unlock value in an apartment market struggling to recover from high vacancies and declining rental rates.

The 128-unit complex, built in 1987, was valued at just over $10 million on the county tax roll.

Now, the investor group buying the apartments estimates that after units are renovated inside and outside, the project will sell out for about $17 million.

Frank Martin of Landcraft Properties is an investor in Eastover Glen and two other recent conversions: 24-unit Windermere on Queens and 20-unit Scotland Colony in Myers Park .

"One of the big drivers we look for is being close in," he said. "We also look at what you have to do to an apartment to make it feel like a home -- a place someone wants to own."

Martin said, "I've seen conversions where they do very little, but we put in hardwood floors and granite or tile countertops in every place we do."

At Eastover Glen, development manager Kevan Smith of LandSmith Real Estate Services said more than 60 of the 128 units have been converted, and a new section of eight townhomes is being added.

The developers announced the project late last year, and they expect to complete it late this year.

Smith said 115 units, including townhomes, have been sold through Helen Adams Realty and 36 owners have closed on units in the Villages of Eastover Glen, the project's new name.

Lance Cibik, a 25-year-old financial services employee at an uptown bank, moved into his condo there about three weeks ago. That put him about two miles from his center city job compared with 12 to 15 miles away at a University City area apartment.

"It was a way for me to live close to downtown but not live in downtown -- to still have that neighborhood feel with the trees, the landscaping and the swimming pool," he said.

The entry-level price also was important for Cibik, who bought a one-bedroom unit for about $100,000.

"It was a lot more affordable," Cibik said. "If you go downtown and buy something new, you are going to pay a premium price."

His approximately $600-a-month payment isn't much different from what he was paying in rent.

In such cities as Miami , San Diego , Las Vegas and Atlanta , buyers are snapping up condos as fast as converters can finish them. But real estate lenders and analysts don't see that happening in Charlotte .

In cities where conversion is robust, affordability isn't just a factor -- it's the deciding factor for homeowners. As the average price of a house exceeds $400,000 in those markets, condos are the only alternative for many working people.

In Charlotte , the average closing price was $195,233 in February, the most recent monthly figure available from Carolina Multiple Listing Services.

Charlotte probably isn't seeing a tidal wave of conversion, because "most of the apartments in this city are not located where people want to be," said residential real estate analyst Emma Littlejohn of The Littlejohn Group.

Eastover Glen and a few other close-in apartment communities are exceptions, she said.

Also, Littlejohn said, apartment owners sometimes are reluctant to sell to converters because they're counting on rental revenue as a long-term investment.

Even though the Charlotte area apartment market is overbuilt now, real estate experts say the cycle eventually turns and the supply tightens.

Some local developers are reluctant to jump on the conversion bandwagon. They remember how quickly conditions can change.

The city experienced a conversion boom in the 1970s and 1980s that went bust after developers put too many units on the market at once, depressing sale prices and eroding resale value.

"The condo market really hadn't matured then," Martin said. "Demand was satisfied rather quickly in a limited market."

With a surge of empty nesters seeking to downsize and more young professionals entering the market, experts see this trend continuing -- at least as long as mortgage rates remain relatively low.

Apartment owners and investors pay close attention when property values rise in desirable neighborhoods near one of their complexes.

That's an important cue that the time might be right for converting rental units to for-sale condos. They compare current value with conversion value and determine how much to charge for a condo to make a profit.

Some do extensive renovations to buildings and grounds, adding such amenities as granite countertops and hardwood floors, while others simply repair, repaint and install fresh carpeting.

When renters are notified of a conversion and given an opportunity to buy their units, developers say most prefer to vacate. Some converters allow tenants to remain during the initial stages of renovation as units are completed a section at a time.

Condo buyers get the investment and tax advantages of home ownership, often for monthly payments similar to what they were charged for rent.

At Eastover Glen, for example, the monthly rent was $975 for a two-bedroom, two-bath apartment when the conversion was announced last year.

In a representative example provided by lender Countrywide Home Loans, a two-bedroom, two-bath, condo could be purchased for $171,540 with no money down and monthly payments of $1,243, including $120.53 monthly home owner dues.

The developers caution, however, that the actual price would be subject to available interest rates and other criteria.
DOUG SMITH   The Next Big Thing   The Charlotte Observer